Brazilian Attorney General Challenges Constitutionality Of World Cup Tax Exemption

Roberto Gurgel, Brazil’s Attorney General of the Republic, has filed a lawsuit asking the country’s Supreme Court to decide the constitutionality of a special World Cup law its Congress passed at the request of FIFA, international soccer’s governing body, according to a report from Bloomberg. The law governs trademark and advertising rights, alcohol sales, ticket prices, and a host of other issues related to the World Cup, which Brazil will host in the summer of 2014.

The major piece of Gurgel’s challenge is to the tax exemptions Brazil provided FIFA and all World Cup sponsors for a period of more than four years around the event. FIFA, which expects to earn more than $4 billion in revenue from the event, is exempt from income taxes as a Swiss non-profit organization. But for-profit sponsors are also exempt from income taxes, and FIFA and those sponsors are also exempt from import and industrial taxes until the end of 2015. Those exemptions violate Brazilian tax laws and those guaranteeing equal treatment, Gurgel said.

“The exemption given to FIFA, its subsidiaries, their legal representatives and their advisers to their employees clearly violates the principle of tax equality,” the Attorney General’s Office said in a statement on the lawsuit, which it filed on June 17. “The legislature cannot favor one taxpayer over another, but only identify situations in which there are differences that justify differential treatment.”

FIFA refused to comment on the lawsuit and a Supreme Court judge said he needed more information and time before he could reach a decision. But the lawsuit is yet another move that could turn Brazil into something of a watershed moment in how worldwide sporting events like the World Cup are conducted. More than a million Brazilians took the streets in protest of government corruption and overspending on the World Cup and Olympics during the Confederations Cup tournament in June, as the government has committed more than $13 billion to the Cup, including more than $3 billion for stadiums even as roads, hospitals, and schools crumble. That drew attention to spending issues in ways that have been issues but have gone largely ignored at previous World Cups.

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This lawsuit could take that even farther, challenging the benefits and legal certainties FIFA demands to put on the World Cup. The World Cup law also creates special zones around stadiums where only FIFA and its sponsors can advertise or sell merchandise and provides FIFA and its sponsors with special trademark protections. FIFA and its sponsors say those are necessary for hosting the World Cup, but if they and the tax exemptions fall in Brazilian court, would committed sponsors back out of the event? And would future hosts launch similar legal challenges or thumb their noses at FIFA when it demands certain legal protections?

FIFA has already expressed its frustrations with Brazil and made it clear that its interests don’t align with those of citizens in the countries that host its events. “I will say something which is crazy, but less democracy is sometimes better for organizing a World Cup,” FIFA’s Jerome Valcke said earlier this year. It’s still far too early to assess the significance of Brazil’s challenges to the FIFA status quo, if there will be any at all, and until populations in more countries stand up against the overspending and excess of events like the World Cup, little will change. But if Brazil’s protests and legal challenges continue, the event that is becoming a Brazilian nightmare could demonstrate the need to prevent similar bad dreams in future host countries and maybe even begin to change the way these events are sold, hosted, and managed for the better.